The move comes at a time when the government is looking to accelerate electric mobility amid rising crude oil prices due to the ongoing West Asia conflict. Sidbi works under the DFS.
Financing of e-buses and e-trucks remains constrained due to limited participation by banks and non-banking financial companies (NBFCs), stringent credit norms, and a highly fragmented ownership structure, where most operators own very small fleets, government officials stated.
Officials said that India has about 2.4 million buses, but only around 150,000 (6-7 per cent) are run by government-owned transport companies called State Transport Undertakings (STUs). The rest — over 90 per cent — are privately owned, but most of these independent operators are small businesses or individuals with just a few buses each. This makes it harder for banks to lend, because small operators have limited financial records and their fleets are too small to support standard loan products. They added that STUs have a system called “Payment Security Mechanism”, or PSM, which ensures that the STU pays contractors (which are private firms) on time for running government buses. Independent bus operators without this safeguard are considered higher risk, so banks are cautious about giving them loans.
The MHI is working with Sidbi to design a financing model that can address these risks and unlock lending to these independent operators. The proposed structure is expected to include risk-sharing arrangements, where a part of the default risk is shared with lenders through a guarantee-backed mechanism, along with interest subvention, under which the government bears a portion of the interest cost to make loans cheaper for borrowers.
Officials said Sidbi is likely to play a structuring and implementing role, which could involve designing a partial credit guarantee framework to provide comfort to banks, rather than directly assuming full default risk. Together, these measures aim to improve loan viability and encourage greater participation from banks and NBFCs. Sidbi has previously piloted similar financing approaches in the e-vehicle segment. In 2023, it launched Mission 50K-EV4ECO to support the deployment of electric two-wheelers (e2Ws) and four-wheelers (e4Ws) for commercial use. The MHI and the Ministry of Finance (FinMin) did not respond to Business Standard’s queries on this matter.
E-bus penetration in India has reached around 4.5 per cent of total bus sales in financial year 2025-26 (FY26), up from about 3.5 per cent in FY25, demonstrating gradual adoption.
Unlike e2Ws, demand for e-buses in India is largely driven by public procurement rather than private buyers. The Centre aggregates demand through schemes such as PM E-DRIVE and PM eBus Sewa, issuing large tenders through agencies like Convergence Energy Services Limited. These tenders follow gross cost contract or public-private partnership models, where private operators own and run the buses while STUs pay on a per kilometre basis. To ensure reliable payments, a "payment security mechanism" is administered by the central government or its implementing agencies, which guarantees timely payments to operators. This gives confidence to both private operators and lenders.
The buses are deployed by state-run transport utilities in cities such as Delhi, Bengaluru, and Hyderabad, with central support through viability gap funding.
This structure reduces upfront costs for public transport bodies, and leads to adoption in bulk cycles linked to tenders rather than steady retail demand.
In contrast, e-truck penetration remains well below 1 per cent of total truck sales, and is still at a nascent stage. Unlike buses, no large-scale government procurement drives demand, and adoption is limited to pilot projects by fleet operators in sectors such as e-commerce, cement, and steel. High upfront costs, limited charging infrastructure for long-haul operations, and uncertainty around total cost of ownership have slowed adoption, leaving the e-truck segment yet to achieve meaningful scale.
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